Scale is a predominant concern for SaaS companies.
Knowing how to scale an organization to support an ever-increasing customer base is crucial for a company’s revenue growth.
How to effectively segment customers and resource accounts is therefore an area I am often asked about when discussing segmentation strategies.
What is the ideal Customer Success Manager (CSM) to customer ratio? What should Customer Success and CSM’s be responsible for? Should Customer Success own revenue? How should CSM’s be compensated? How should Sales and Customer Success align?
Unfortunately, most of the time I see companies creating a segmentation matrix based on the usual suspects of Annual Contract Value (ACV), their customer’s employee count, or their customer’s revenue.
This type of account segmentation, and the corresponding coverage model, is usually disconnected from product adoption.
How is a customer segmentation strategy based on how much the customer pays your organization, or how many employees they have, related to customer adoption and how they operationalize your software within their organization?
Often it is completely unrelated.
That is the problem.
If the segmentation variables are not tied to adoption of the software then a company's customer segmentation strategy will not effectively drive revenue growth.
After all, adoption is the key to revenue growth as it determines usage of the software; and usage of the software determines customer retention and ongoing expansion of the software.
Thus, my answer for conducting an effectively segmentation analysis and creating the ideal customer segmentation framework is to understand what drives the most effective adoption and use those parameters to segment your customer base and resource accounts accordingly.
What is Account Segmentation? versus What is Account Coverage?
But first, it is important to understand the difference between account segmentation and account coverage.
Account segmentation is the grouping of customers based on their similar needs for the software.
Account coverage is the assignment of resource types to accounts to fulfill the customer’s software adoption needs.
The two interplay through the adoption and use of software and form the account segmentation strategy.
Account coverage allows for the fulfillment of the account segmentation needs.
Understand what drives the most effective adoption amongst your customer segments and you will understand what resources and skillsets are required to drive the most effective adoption.
Key Adoption Parameters for Customer Segments Definition
Accordingly, it is important for a business to understand their key adoption parameters in order to correctly define the customer segmentation strategy.
The most critical adoption parameters I have consistently seen are: the industry the product is serving, the customer’s business maturity in the area that the product serves, how established the business processes in the industry that the product serves are, the complexity of the software, and the areas of expansion opportunity for the use of the software.
To better visualize this, I have created a customer segmentation framework (illustrated above) consisting of the key adoption parameters to facilitate the development of the corresponding Account Coverage Model.
Using the "adoption spectrum" component of the framework, a company can identify their two dominant adoption drivers and use these as classification criteria to define each customer segment meaning.
Creating the Account Segmentation and Coverage Models
The following diagram is an example customer segmentation framework that DesiredPath developed for a customer using the adoption spectrum.
It includes the characteristics of the needs of each segment based on their two key adoption drivers.
With a clear understanding of its account segmentation and their customer's adoption needs in hand, the company was able to determine the corresponding resources required to fulfill those needs.
Depending on what drives product adoption, the type of skillsets that resources need in order to fulfill the successful use of the software will vary (as illustrated in the Account Coverage Model).
Capturing that within the account coverage model is important so that a company’s resources are aligned to effectively drive adoption.
Bottom Line for the Ideal Customer Segmentation Framework
If a company’s account segmentation and coverage models are not aligned to customer adoption, it will never effectively drive revenue growth.
There is a strong interplay between account segmentation and account coverage models through adoption parameters.
Knowing the key adoption parameters is therefore crucial in defining the right customer segmentation framework and account coverage model, and aligning the two accordingly.
The key adoption parameters are typically those outlined in the adoption spectrum model.
Use those as classification criteria to segment your customers, outline the customer segments definition, and align resources accordingly to fulfill the adoption needs of each segment.